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Monday, November 4, 2013

CapitaLand - More deliveries in 4Q13 (CIMB)

CapitaLand -
Current S$3.16
Target S$3.91
More deliveries in 4Q13

CMA's strong development sales and yield improvements at its retail malls were harbingers of a positive 3Q for CapLand and augur well for the latter's future operating performances. Higher project costs affected CapLand's bottom line but we expect margins to improve in 4Q13 when most of its FY13 China units are handed over. 3Q13 core EPS was slightly below at 16% of our FY13 estimate (9M13 at 62%) due to higher project costs. We adjust our FY13-15 core EPS by +4%/-6% for sales-recognition changes. Our target, still at a 20% discount to RNAV, is intact. Maintain Outperform with catalysts to come from potential restructuring and operational improvements.

3Q13 core EPS was slightly below at 16% of our FY13 estimate (9M13 at 62%) due to higher project costs. We adjust our FY13-15 core EPS by +4%/-6% for sales-recognition changes. Our target, still at a 20% discount to RNAV, is intact. Maintain Outperform with catalysts to come from potential restructuring and operational improvements.

Development sales
CapLand sold 707 units in China in 9M13 which pushed up its sales volume by 21% while 9M13 sales value was the same yoy (78% sell-through rate). FY14-15 earnings should remain underpinned by this momentum. In Singapore, its pursuit of volume over margins (in our view) also continued to show results with 1.1k units sold YTD vs. just 329 in 9M12. Its latest project, Sky Vue in Bishan, is now over 80% sold.

CMA and RC portfolio
CMA's 3Q same-mall NPI grew 12% yoy with tenant sales in China up 9.8%. Yield on cost for malls opened before 2012 was up 6-24% yoy. In Singapore, shopper-traffic and tenant-sales growth was stable at 3.2-3.6% yoy. Bedok Mall (100% preleased) and Westgate (85%) are expected to open in 4Q13. We expect new malls in Singapore and higher property yields in China to power CMA's earnings in the next 12-15 months. At CapLand's level, its Raffles City (RC) portfolio of 3.1m sm GFA in China is also building up nicely. RC Chengdu's and Ningbo's retail malls are now 97-99% occupied. The construction of four more RC projects has started and these will be completed in stages over 2015-18.

Valuations
Earnings quality is improving though the timing of any potential restructuring is unclear. CapLand trades at an attractive 35% discount to its RNAV and 0.8x P/BV, (cheapest among the big-cap developers).

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